African nations are carrying the torch of free trade

June 28, 2018

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Free trade is increasingly coming under fire by populist leaders. President Donald Trumphas been accused of starting a global trade war after imposing higher tariffs on steel and aluminum products, a move that prompted some of America’s biggest trading partners and longest allies to increase their own tariffs. And, in Italy, the election of an anti-establishment, anti-globalization and anti-immigrant government has created doubts about that country’s commitment to the European Union, just when the bloc was coming to terms with Brexit’s implications for EU trade.

But while the biggest global economies are going tit for tat in anti-trade rhetoric, African nations are quietly emerging as the unexpected defenders of free trade by doing the opposite: removing restrictions on the movement of goods, people and capital in a wide-ranging effort to boost intra-African trade.

The rapid progress towards a single, multi-trillion-dollar African market provides valuable lessons on the positive implications of free trade for economic and social development. Some of the poorest nations in the world are doubling down on trade as a means to generate prosperity domestically. As the largest voting block within the WTO, African leaders should raise their voices in the global debate on trade and defend the principles upon which they are betting their economic futures.

Free movement of goods

Since 2012, African countries have been working concertedly to open the trade in goods across the continent. In March, 44 African nations signed a historic agreement to create the African Continental Free Trade Area (AfCFTA) – the largest free trade effort since the founding of the WTO. Building on the success of sub-regional economic integration initiatives such as the East African Community’s (EAC’s) common market, the AfCFTA will remove tariffs on up to 90 percent of goods and non-tariff barriers to trade will be dismantled.

Today, only 16 percent of trade in Africa takes place between African countries due to poor infrastructure, undiversified economies and antiquated border procedures. Once implemented, the AfCFTA could increase intra-Africa trade by 52 percent by 2022. Already five countries have ratified the agreement. Once that number reaches 22, the agreement will become operational.

The value comes not just from having an ambitious trade area goal, but also from the process of reaching it. Since negotiations on the AfCFTA started in 2012, African nations have made rapid progress by building infrastructure and eliminating red tape that prevent the free movement of goods between neighbors. The Northern Corridor Integration Project has reduced transit time from Mombasa, in Kenya, to Kigali, in Rwanda, from 22 days to five, by reducing inefficiencies without additional investment. The AfCFTA will further integrate transport and infrastructure networks, not only within but between sub-regional blocs.

Free movement of people

African nations have also made quiet but dramatic headway in advancing the free movement of people within the region. While Western countries clamp down on migration and tighten boarders, African countries are being more welcoming to their neighbors. According to the Visa Openness Index, over a third of African countries have more liberal visa policies now than in 2015. Last year, Africans did not need a visa to travel to 22 percent of other countries in the region, up from 20 percent in 2015. Ethiopia and Angola have recently announced the lifting of visa restrictions.

The progress came after strong lobbying from leading African businesses and a public tracking effort by the consulting firm McKinsey. Billionaire businessman, Aliko Dangote, decried the fact that he needed 38 visas to travel around African markets and called for dramatic reforms of customs and border control. The African Union responded and introduced an official African passport in 2016 for presidents and African Union diplomats that will hopefully reach the hands of more and more everyday business travelers.

Free movement of capital

While a single African currency has been mooted for some time, with possibilities being the Eco, the Afro and the Africa Master Coin, official efforts have been put on the back burner given the eurozone troubles. That said, private sector options are emerging as potential solution to the inefficiencies that come from the dozens of currencies in operation on the continent.

Africans have always been innovative when it comes to moving money. Kenyan mobile money platform, M-Pesa, is the continent’s biggest leapfrogging success story. It has been credited with boosting economic development by freeing up the movement of money without the need for a bank account. Now, BitPesa aims to do the same for Africa by facilitating quick and affordable Bitcoin payments across borders in the region.

Founded in Kenya, the digital foreign exchange and payment platform allows users in Tanzania, Nigeria, Uganda, Senegal, DRC, Ghana and the UK to easily transact between these countries despite the complexity of currency exchange rates. Companies in sectors as diverse as tourism, logistics, fast-food delivery, and healthcare are adopting BitPesa as their preferred way to make business to business transactions. Seeing the success of companies such as BitPesa, South African President Cyril Ramaphosa supports the idea of a digital currency for the continent as corollary to the progress being made on the trade front.

The past decade has seen rapid economic growth across many African markets. The next decade will be defined by efforts to institutionalize the growth and ensure sustainability. A single African market of 1.2 billion people with a combined gross domestic product of more than $2 trillion will be a game changer for global trade and investment trends. As the U.S. and China continue to toss tariffs at each other, African countries are deepening collaboration. They are now carrying the torch of free trade.